How One Bank Flattened Fraud

Protecting the bank and its customers – through cybersecurity measures, identity verification, fraud detection and the like – is vital in ensuring a financial institution’s safety and soundness, as well as its reputation in the marketplace. These investments typically represent significant cost centers, but fraud prevention tools can be an exception to the rule if they’re able to pay for themselves by preventing losses.

“The idea is, when you put in a fraud system – and this is where some folks lose it – you want to make sure to catch more fraud than the system costs,” says Ronald Zimmerman, vice president in the operations department at $32.2 billion IBERIABANK Corp., based in Lafayette, Louisiana. “You always have to make sure that the cost doesn’t supersede your savings.”

Zimmerman implemented ARGO OASIS about a year ago. OASIS, which stands for Optimized Assessment of Suspicious Items, uses neural networks and image analytics to detect and prevent fraud. Modeled after the human brain, neural networks are a form of artificial intelligence designed to recognize patterns, making it well suited to identify check alterations, forgeries and other forms of transaction fraud. The solution then provides bank employees with detailed information to enable them to further investigate the activity.

Bank Director’s 2020 Risk Survey found that just 8% of executives and directors report that their bank uses AI technology to improve compliance. One-third are exploring these types of solutions.

IBERIA brought in OASIS to identify fraud in its “two-signature accounts” – customer accounts that require two signatures on a high-dollar check. “We have a queue set up in OASIS to monitor these checks as they come in through clearing. If a signature is missing or is in question, OASIS flags it for review,” Zimmerman says.

One thing about the technology that sets it apart is its check stock validation tool. “You have an overlay button where you can place a questioned check on top of a good check, and you have a little slide bar [so you] can see the small differences,” he says.

That tool alone has helped the bank stop roughly $300,000 in check fraud over the first eight months of use – meaning ARGO has already paid for itself. “We’ve caught a ton of fraud through this product,” says Zimmerman.

And $300,000 is a conservative estimate of the bank’s savings, Zimmerman says, because fraudsters have learned not to target his bank. “Check fraud flattened out, because the fraudsters have probably moved on, knowing that we’ve covered up a hole that was there before.”

ARGO OASIS was recognized as the Best Solution for Protecting the Bank at the 2020 Best of FinXTech Awards in May. ALTR, a blockchain-based security solution, and IDology, which uses big data for identity verification and fraud detection, were also finalists in the category.

Importantly, ARGO helps IBERIA stop fraud efficiently. A task that used to occupy three full-time employees’ time now takes two employees just a couple of hours.

IBERIA will soon merge with Memphis, Tennessee-based First Horizon National Corp. to form a $75 billion company. The deal was driven in part by the pursuit of scale.

Generating efficiencies is essential to better compete with big banks, said First Horizon CEO Bryan Jordan in a 2017 presentation. “We’ve got to be invested in technologies in such a way that we’re at or above table stakes,” he said. “The trick for us will be to … create efficiency in other parts of the business to create money that we can invest in leading-edge technologies and processes that really allow us to be competitive.”

Leveraging AI to reduce compliance busywork is a great place to start.